The Court of Appeals for the Federal Circuit vacated and remanded the decision of the United States District Court for the Northern District of California, which found U.S. Patent No. 5,820,551 (“the ’551 patent”) unenforceable due to inequitable conduct.

The Federal Circuit heightened the standard for proving inequitable conduct with respect to both the intent and materiality elements. The new test requires specific intent to deceive. A finding of materiality must show that “but-for” nondisclosure, the claim would not have been approved. The holding was a response to concerns about overuse of the inequitable conduct defense and the harshness of the remedy, characterized as the “atomic bomb of patent law.” The case was remanded to the district court to determine whether defendants’ conduct was inequitable under the new test.

The ‘551 patent is a patent on disposable test strips measuring blood glucose levels for diabetics. During prosecution of the ‘551 patent, Abbot, previously Therasense, did not disclose to the Patent and Trademark Office (“PTO”) a brief containing statements that may have negated Abbot’s arguments that the ‘551 patent was non-obvious in light of another patent owned by Abbot (“the ‘382 patent”). To overcome PTO challenges that the ‘551 patent was obvious in light of the ‘382 patent, Abbott argued that the ‘382 patent required the tested blood to contain protective membranes; the ‘551 patent did not. Abbott declared that a person having ordinary skill in the art would not have inferred from the ‘382 patent that blood can be tested without a protective membrane. However, Abott failed to disclose briefs[D1] , filed during prosecution of the ‘382 patent equivalent before the European Patent Office (“EPO”), stating that use of blood with protective membranes was optional. The district court found inequitable conduct because defendants should have known about the brief and failed to offer a good-faith explanation for the omission. The Federal Circuit remanded the case to the district court to determine whether defendants’ conduct failure to dis`close the ‘382 briefs was material under the new test.

In articulating the new test, the court emphasized three issues. First, the patentee must have had a specific intent to deceive the PTO. Negligent or grossly negligent nondisclosure does not satisfy the intent requirement. Second, the court emphasized that materiality and intent are distinct tests and eliminated the previous practice of using a “sliding scale,” i.e., allowing a strong showing of intent to compensate for a weaker showing of materiality, and vice-versa. Finally, materiality must satisfy a “but-for” test. Non-disclosure is material if the PTO would not have allowed the claim but-for the deliberate non-disclosure. The court allows an exception to the but-for test in cases of “affirmative egregious misconduct,” consistent with early “unclean hands” cases involving“deliberately planned…scheme[s] to defraud the PTO.” The heightened materiality standard is warranted, the majority argues, because the penalty for inequitable conduct, unenforceability of the entire patent, is severe and should not result unless the patentee actually benefited from such conduct.

Judge O’Malley’s concurrence-in-part, dissent-in-part expressed concern that the new materiality standard lacks flexibility. He would have affirmed the district court’s finding of inequitable conduct in this case. He proposed increasing flexibility with respect to the remedy,allowing district courts to invalidate individual claims rather than the entire patent.

Judge Bryson’s dissent argued for a more lax materiality standard. An omission should be considered material if it is inconsistent with the patentee’s position taken during prosecution. This test is stated in Rule 56 of the PTO Guidelines. The dissent argued that with the majority’s high bar, a patent applicant has nothing to lose by lying to the PTO.

The holding is significant as it redefines the test used to determine inequitable conduct. The holding was intended to address the consequences of overusing the inequitable conduct doctrine, such as increased complexity and cost of litigation and constant threats to companies’ patent portfolios. Overuse of the doctrine has wasted PTO resources and increased backlog because patent applicants defensively “bury PTO examiners with…prior art references, most of which have marginal value.”